Leveling the air pollution control cost playing field

Mar 01, 2000

The old saying "The devil is in the details" applies to estimating air pollution control costs (APCCs). Among the most vexing of these details is making sure that all costs are equivalent, i.e., reflect the same date. This problem arises when cost data are expressed in different years (e.g., 1995, 1997 and 1999 dollars) or are in years different from the desired date (such as when costs are in 1994 dollars, but the estimates must be in 1999 dollars). Mixing these multi-vintage costs together would create an apples-and-oranges situation. How does the estimator put all the costs on a common basis  leveling the playing field, so to speak?

The traditional way of doing so is to adjust, or escalate, the costs to a common date via a cost index. Examples include the well-known Consumer Price, Producer Price and Employment Cost Indexes, all of which are computed and distributed by the U.S. Department of Labor's Bureau of Labor Statistics. Which of these and/or other "traditional" indexes is best suited to escalating APCCs? Answer: None. No traditional index can accurately track the price changes in the wide variety of equipment types, designs and sizes used in air pollution control. Only a set of custom-made indexes created especially for control equipment could be used to accurately escalate air pollution control costs.

Such a set of custom indexes has been created. Named the Vatavuk Air Pollution Control Indexes (VAPCCIs), they were developed by the U.S. Environmental Protection Agency (EPA) in 1994, for 11 categories of "add-on" controls:

Carbon adsorbers;

Catalytic incinerators;

Electrostatic precipitators (ESPs);

Fabric filters;

Flares;

Gas absorbers;

Mechanical collectors (cyclones);

Refrigeration systems;

Regenerative thermal oxidizers;

Thermal incinerators; and

Wet scrubbers (for particulate control).

Since then, the VAPCCIs have been updated quarterly and posted on EPA's Office of Air Quality Planning and Standards Technology Transfer Network Web site (TTN) ( www.epa.gov/ttn/catc), along with an EPA report (Escalation Indexes for Air Pollution Control Costs) that provides background information on how the indexes were created and how they are to be used.

How are VAPCCIs calculated?

The VAPCCIs rest upon a foundation of data obtained from an extensive survey of air pollution control equipment vendors and the Bureau of Labor Statistics (BLS). The vendor survey provided component-by-component fractions (breakdowns) of prices for nine of the 11 control device categories.1 For each category, breakdowns were obtained for three size ranges: small, medium and large. Multiple size ranges were used because the price fractions are not equal for all equipment sizes. For example, 18 percent of a small carbon adsorber's price is attributable to the adsorber vessels, while the vessels contribute 25 percent to the price of a large adsorber. 2

The BLS input data consist of 30 individual Producer Price Indexes and the "professional, specialty and technical occupations" component of the Employment Cost Index (ECI). The PPIs cover items as diverse as mineral wool insulation, plastic pipe, gas burners and process instrumentation  all of which are components of one or more types of control equipment. For each control device category (e.g., thermal incinerators), the aforementioned price fractions, the PPIs and the ECI were combined via a weighting scheme to create three individual, size-specific cost indexes, viz.:

Index (size-specific) = Sum of the products of the price fractions and PPIs/ECI

Finally, these three size-specific indexes were averaged to obtain an overall VAPCCI for each category:

VAPCCI (category-specific) = average of indexes (size-specific)

How are VAPCCIs used?

Like other indexes, VAPCCIs are not prices. Rather, they are relative prices, in that each VAPCCI is the ratio of the price of a control device reflecting one date to the price corresponding to another date. Thus, if we want to adjust (escalate) a price of, for example, a thermal incinerator from 1994 to 1998 dollars, we would multiply this price by the ratio of the annual VAPCCIs corresponding to those years, or:

The table shows average VAPCCIs for the years 1994 through 1998, each yearly average being the arithmetic mean of the four quarterly indexes. The VAPCCIs for thermal incinerators corresponding to those years are 101.3 (1994) and 110.5 (1998). If the incinerator price (1994 dollars) were $125,000, the price in 1998 dollars would be:

Price (1998 dollars) = $125,000 x {110.5/101.3} = $136,400 (rounded)

A reader might ask: Where did the $125,000 for the thermal incinerator come from in the first place? An incinerator vendor might have supplied it, or it may have been extracted from a firm's accounting records. Alternatively, the price could have been estimated via an established, well-respected report, EPA's OAQPS Control Cost Manual (see OAQPS Control Cost Manual). Regardless of its source, however, the original price  in 1994 dollars  did not fill the bill; it had to be updated to 1998 dollars.

How do VAPCCIs compare to other indexes?

It is interesting to compare the annual VAPCCIs to other established indexes that, in pre-VAPCCI days, often were used to escalate control device costs. Two of the best-known indicators are the monthly Chemical Engineering Plant Cost Index (CEPI) and the quarterly Marshall & Swift Equipment Cost Index (M&SI), both published in Chemical Engineering magazine. Both indexes are plotted against the annual VAPCCIs for thermal incinerators and fabric filters, for the years 1994-98. (These two devices were selected, because thermal incinerators and fabric filters are among the most commonly used control devices for gaseous and particulate pollutants, respectively.) All indexes have been adjusted (normalized) to 1994, such that their values for 1994 all equal 100.0.

The VAPCCI lies above the CEPI and M&SI over the entire range, indicating that thermal incinerator prices have increased more rapidly than chemical plant and equipment costs for those years. Conversely, the fabric filters VAPCCI compares well with the CEPI and M&SI for 1996-97, though it lies below them in 1995 and above in 1998. Still, the VAPCCI tracks the other indexes fairly well, overall.

What do these two figures tell us? For one thing, they show that VAPCCIs do, indeed, vary by control device category, and that they compare differently with other indexes. They also show that these differences among the VAPCCI increase over time. But the most important conclusion we can draw about the VAPCCIs is that control device prices cannot be modeled by a single index. Control devices are simply too diverse in terms of application, design, construction and other factors to be so characterized.

Some final words

Certainly, the VAPCCIs are easy to use. Yet they are also easy to misuse. Like all other indexes, the VAPCCIs are models  representations of the control equipment vendor pricing schemes. Over a given period, a VAPCCI might track vendor price changes quite closely. Over another period, however, it might deviate significantly. As a general rule, during periods of relatively low inflation (as measured by the CPI bellwether), these deviations would be smaller than during high-inflation periods. That's because the prices of the components that make up control devices also would tend to increase less during those periods.

In any case, it would be foolish to escalate equipment costs blindly via a VAPCCI (or any other index) if current prices were readily available from a vendor or another reliable source. After all, no index can replace current, reliable equipment costs. Still, when there is not enough time or resources to obtain the latest costs, the VAPCCIs  easy to use, easy to understand and custom-made for air pollution control devices  provide an excellent substitute.

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The VAPCCIs can be used to escalate air pollution control equipment costs  but where can we obtain these costs? Probably the best source of these data is the OAQPS Control Cost Manual, a report written and updated by EPA's Office of Air Quality Planning and Standards. Now in its sixth edition, the manual contains 10 chapters. The first two address introductory topics and cost-estimating methodology, respectively. Chapters 3 through 9 cover individual "add-on" control devices, ranging from thermal and catalytic incinerators to gas absorbers. Finally, chapter 10 deals with hoods, ductwork and stacks  auxiliary equipment that can be used with any type of control device.

However, costs are not the only information found in the manual. First, each chapter describes how a control device functions and the types of emission sources it can control. Like automobiles, computers and other machines, control devices are continually being improved upon. The chapter provides the latest of this information. Valuable guidance on how to "size" (design) control devices is also provided. Sizing involves calculating one or more parameters (e.g., the collecting plate area in an electrostatic precipitator) against which control device equipment costs typically are correlated. Thus, sizing is an essential step that must be completed before the equipment cost of a device can be estimated.

Along with the equipment cost are data and equations for determining other expenditures pertaining to the control device. This information is used to compute the total annual cost  the single number that incorporates both the capital (investment) and the various operating and maintenance costs for the device, such as labor and utilities. Additionally, to help the reader understand and apply the sizing and costing concepts, the chapter includes a comprehensive example problem. Finally, costs are classified as "study" estimates, with a nominal accuracy of +- 30 percent.

Copies of the manual may be downloaded from the Technology Transfer Network (TTN) on EPA's Web site at www.epa.gov/ttn/catc. Each of the chapters is posted as a separate file in both WordPerfect 6.8 and Acrobat formats. Since their posting in mid-1996, over 18,000 copies of the chapters have been downloaded from the TTN. This fact alone demonstrates the manual's universal acceptance and usage within the air pollution control field.